Method of creating and maintaining multi-manager exchange traded funds

ABSTRACT

Systems and methods for creating and maintaining multi-manager exchange traded funds. An embodiment of a method includes receiving a plurality of model portfolios, each created by a different portfolio manager and identifying a plurality of assets traded on a stock exchange. A portfolio composition file is created based at least in part on at least a portion of the model portfolios. The portfolio composition file identifies a set of constituent assets traded on the stock exchange. One or more authorized participants are authorized to trade the set of constituent assets for a creation unit of an exchange traded fund. The creation unit includes at least one share that is tradable on the stock exchange by both the authorized participant(s) and the investors.

CROSS REFERENCE TO RELATED APPLICATION(S)

This application claims the benefit of U.S. Provisional Application No.61/537,964, filed on Sep. 22, 2011, which is incorporated herein byreference in its entirety.

BACKGROUND OF THE INVENTION Field of the Invention

The present invention is directed generally to methods of implementingexchange traded funds, and more particularly to methods of implementinga multi-manager investment strategy for exchange traded funds.

Description of the Related Art

FIG. 1 is a diagram 100 illustrating entities and information flowsbetween those entities involved in a prior art method of creating andtrading shares of an exchange traded fund (“ETF”). An ETF includes oneor more constituent assets (such as securities) that define the ETF.Some ETFs are designed to mirror the performance of an underlying marketindex, while other ETFs are actively managed and seek to outperform amarket benchmark. An ETF entity 102 determines which constituent assetsare included in the ETF. A fund manager employed by the ETF entity 102may manage the ETF.

The ETF entity 102 also creates and sells shares of the ETF. However,instead of creating ETF shares and selling them directly to one or moreinvestors 108 (as is typically done with a mutual fund) the ETF entity102 creates and redeems ETF shares with one or more authorizedparticipants (“AP(s)”) 104. In the embodiment illustrated, the AP(s) 104include an AP “A” and an AP “B.” However, as is appreciated by those ofordinary skill in the art, the AP(s) 104 may include any number of APs.

The ETF entity 102 creates and sells ETF shares in blocks including apredetermined number of ETF shares, referred to as “creation units.” Acreation unit may include any number of ETF shares but typicallyincludes 50,000 shares to 100,000 shares.

The creation and sale of ETF shares is generally referred to as an“in-kind” transaction. This means the ETF entity 102 provides a creationunit of ETF shares (identified by arrow 105) to the AP(s) 104 for eachbasket of constituent assets (identified by arrow 103) provided by theAP(s) that define or correspond to a creation unit of the ETF. Thus, theAP(s) 104 may acquire new ETF shares by first purchasing shares of theconstituent assets (identified by arrow 107) that define a creation unitof the ETF on a stock exchange 106 and exchanging them for a creationunit (identified by arrow 105) of the ETF.

The AP(s) 104 may then sell the ETF shares (identified by arrow 109) tothe investor(s) 108 via the stock exchange 106. This is sometimesreferred to as the secondary marketplace for ETF shares. The investor(s)108 may buy and sell ETF shares (identified by double-headed arrow 101)on the stock exchange 106.

To redeem ETF shares, one or more of the AP(s) 104 may return a creationunit of the ETF shares to the ETF entity 102, and receive (in exchangefor the ETF shares) a basket of the constituent assets that define thecreation unit of the ETF.

The constituent assets of the ETF are listed in a portfolio compositionfile (“PCF”). Generally, each day after the stock exchange 106 hasclosed, the ETF entity 102 publishes a new PCF (identified by arrow 111)to a PCF information distribution entity 110. The PCF informationdistribution entity 110 is an entity authorized to disseminate the newPCF to the public under applicable laws and regulations. Depending uponthe applicable laws and regulations, the PCF information distributionentity 110 may be the ETF entity 102 and/or a third party entity such asa clearing house entity (e.g., The Depository Trust & ClearingCorporation, National Securities Clearing Corporation, and the like).The constituent assets of the ETF may change over the lifetime of theETF. Modifications to the constituent assets are contained in the newPCF (identified by arrow 111) provided to the PCF informationdistribution entity 110. Before the stock exchange 106 reopens, the PCFinformation distribution entity 110 communicates ETF constituentinformation (identified by arrow 112) identifying the constituent assetsof the ETF to the AP(s) 104.

Next, the assets actually held by the ETF must be modified to correspondto those listed in the new PCF. After receiving the ETF constituentinformation, each of the AP(s) 104 determines whether it must purchaseadditional assets on the stock exchange 106 to provide to the ETF entity102 and whether the ETF entity 102 must return to the AP(s) 104previously purchased assets that are not listed in the new PCF. How manyassets are purchased by or returned to each of the AP(s) 104 isdetermined by how many creation units the AP has created and not yetredeemed. Double-headed arrow 113 illustrates both constituent assetsprovided to the ETF entity 102 by the AP(s) 104 when the PCF listsassets not included previously in the ETF and constituent assetsreturned to the AP(s) 104 by the ETF entity 102 when the PCF no longerlists assets that were previously included in the ETF. Double-headedarrow 114 illustrates both the purchase of additional constituent assetsby the AP(s) 104 on the stock exchange 106 (which occurs when the PCFlists assets not included previously in the ETF) and the optional saleof any constituent assets returned to the AP(s) 104 by the ETF entity102 when the PCF no longer lists assets that were previously included inthe ETF.

A multi-manager investment strategy invests in multiple portfolioscontrolled by different portfolio managers. Thus, a multi-managerinvestment strategy combines the styles and expertise of severalinvestment portfolio managers and reduces risk and exposure to each ofthe individual portfolio managers, particularly in fluctuating marketconditions. A fund implemented using a multi-manager investment strategyis referred as a multi-manager fund. A multi-manager fund may be managedby a fund manager (who is typically also a provider of the multi-managerfund).

Depending upon their implementation details, multi-manager funds mayprovide one or more of the following advantages over funds that investin assets determined by a single portfolio manager.

-   -   An extra layer of risk management. The fund manager of the        multi-manager fund may be analogized to a conductor in an        orchestra. Each of the musicians (or portfolio managers        contributing to the multi-manager fund) in the orchestra is an        expert in his/her own right, but the conductor brings them        together for the benefit of the overall portfolio.    -   Monitoring of portfolio managers. The fund manager of the        multi-manager fund monitors the individual portfolio managers        who contribute to the multi-manager fund. Such monitoring may        include conducting regular face-to-face reviews with the        portfolio managers and ensuring that the portfolio managers do        not deviate significantly from their investment strategies.    -   As appropriate, the fund manager of the multi-manager fund will        hire and fire the individual portfolio managers who contribute        to the multi-manager fund.    -   The fund manager of the multi-manager fund may scrutinize the        individual portfolio managers who contribute to the        multi-manager fund on an ongoing basis. The fund manager of the        multi-manager fund may use a specialized monitoring system to        evaluate the portfolio managers, including processes used by the        portfolio managers, portfolios created by the portfolio        managers, the performance of each of the portfolio managers, and        the like.    -   Convenience. A multi-manager fund allows an investor to monitor        and track an entire investment portfolio encapsulated in the        single multi-manager fund.    -   Affordability. With a large investor base, the fund manager of        the multi-manager fund may obtain volume discounts from the        individual portfolio managers who contribute to the        multi-manager fund and pass these discounts on to investors in        the multi-manager fund. As a result, multi-manager funds tend to        be price competitive with other types of funds that invest in        assets determined by a single portfolio manager.

ETFs have traditionally been created based on indexes and funds thatinvest in assets determined by a single portfolio manager. In otherwords, ETFs have not been able to benefit from multi-manager investmentstrategies. Further, conventional multi-manager investment strategies(such as those used to implement multi-manager mutual funds) cannot beapplied to ETFs. For example, one conventional multi-manager investmentstrategy allocates portions of a multi-manager fund to differentportfolio managers to manage. Each portfolio manager manages his/herportion of the multi-manager fund within an account at a custodian bank.Because only the AP(s) 104 can create and redeem shares of an ETF usingin-kind transactions, the aforementioned conventional multi-managerinvestment strategy simply cannot be implemented for ETFs. Therefore, aneed exists for methods of implementing multi-manager investmentstrategies for ETFs. The present application provides this and otheradvantages as will be apparent from the following detailed descriptionand accompanying figures.

BRIEF DESCRIPTION OF THE SEVERAL VIEWS OF THE DRAWING(S)

FIG. 1 is a diagram illustrating entities and information flows betweenthose entities involved in a prior art method of creating and tradingshares of an exchange traded fund (“ETF”).

FIG. 2 is a diagram of a system that includes computing devices operatedby two or more portfolio managers, a modeling entity, an ETF entity, aPCF information distribution entity, one or more sources of marketinformation, and one or more authorized participants (“APs”).

FIG. 3 is a flow diagram of a method that may be performed by the systemof FIG. 2 and used to create and/or maintain a multi-manager ETF.

FIG. 4 is a diagram illustrating entities and information flows betweenthose entities involved in the method of FIG. 3.

FIG. 5 is a flow diagram of a method that may be performed by one ormore computing devices operated by the modeling entity.

FIG. 6 is a diagram of hardware and an operating environment inconjunction with which implementations of the computing devices andnetwork of the system of FIG. 2 may be practiced.

DETAILED DESCRIPTION OF THE INVENTION Definition of Terms

Unless defined otherwise, technical and financial terms used herein havethe same meaning as commonly understood by one of ordinary skill in theart to which this invention belongs. For purposes of the presentinvention, the following terms are defined below.

Asset: a purchasable tangible or intangible item having economic value.Examples of assets include shares in a mutual fund, shares of a stock,exchange traded products (defined below), bonds, and the like.

Asset Class: a group of securities that exhibit similar characteristics,behave similarly in the marketplace, and are subject to the same lawsand regulations. The three main asset classes are equities (e.g.,stocks), fixed-income (e.g., bonds), and cash equivalents (e.g., moneymarket instruments). However, asset classes may include additional typesof assets, such as real estate and commodities. Each asset class mayreflect different risks, return, or investment characteristics. Further,different asset classes may perform differently in the same marketenvironment.

Authorized Participant (“AP”): Entities (e.g., large institutionalinvestors) that may create or redeem shares of an ETF (defined below) byexchanging constituent assets of the ETF (defined below) for shares ofthe ETF directly with an ETF entity. An AP may act as a market maker forthe ETF on the open market.

Clearing House Entity: a financial services company that providesclearing and settlement services for financial transactions, and oftenacts as central counterparty (a payor actually pays the clearing house,which then pays a payee). As a result, traders are not exposed to risksthat the counterparty will not perform on a trade.

Constituent Assets of an ETF: the assets and/or derivatives (wherelegal) held by (and defining) the ETF.

Creation Unit: A predetermined number of ETF shares that make up oneunit of the ETF. One creation unit is the denomination of constituentassets that can be exchanged for the predetermined number of ETF shares.

Exchange Traded Fund (“ETF”): an investment vehicle traded on at leastone stock exchange that holds either assets (such as stocks, exchangetraded products, bonds, and the like) or derivatives (that representsuch exposures) and trades at approximately the same price as the netasset value of these underlying assets or derivatives over the course ofthe trading day. Most ETFs track an index, such as the Russell 1000®index, Russell 1000® Value index, Russell 1000® Growth index, Russell2000® index, and the like. Only AP(s) (which are typically, largeinstitutional investors) create or redeem shares of an ETF by exchangingthe underlying assets or derivatives for shares of the ETF directly withthe ETF entity.

Exchange Traded Product (“ETP”): a derivatively-priced security thattrades intra-day on a national stock exchange. ETPs are typicallybenchmarked to indices, stocks, commodities, or may be actively managed.Examples of ETPs include ETFs, exchange traded notes, closed-end funds,and similar exchange traded (or listed) trust vehicles that may holdequities, fixed income assets, real estate, commodities, alternatives,and the like.

Multi-manager ETF: an ETF constructed from portfolios provided by morethan one portfolio manager. A multi-manager ETF may be managed by a fundmanager.

Portfolio Composition File (“PCF”): a file that identifies a basket ofconstituent assets that define a block (e.g., a creation unit) of sharesof an ETF. For each constituent asset, the PCF may include theidentifier of the constituent asset, the number of shares of theconstituent asset included in the basket, and a weight for theconstituent asset. The ETF entity publishes the PCF to the PCFinformation distribution entity daily. The PCF information distributionentity provides the information in the PCF to the AP(s) and marketmakers for valuing and/or pricing the ETF shares in the market (e.g., onthe stock exchange 106 illustrated in FIG. 4) and facilitating thecreation and redemption of shares of the ETF at Net Asset Value (“NAV”).ETF entities are required to generate and publish a PCF daily for eachETF.

Prospectus: A document required by and filed with the Securities andExchange Commission that provides details about an investment offeringfor sale to the public. A prospectus is intended to contain facts thatan investor would need to make an informed investment decision.

Risk Models: models (e.g., computer-generated models) used by portfoliomanagers and/or fund managers to evaluate an amount of risk associatedwith investing in a particular portfolio. Risk models typically provideinformation related to risk factors such as liquidity, momentum,volatility, exchange rate sensitivity, combinations thereof, and thelike.

System 200

FIG. 2 is a diagram of a system 200. The system 200 includes computingdevices 210 operated by two or more portfolio managers 402 (see FIG. 4),one or more computing devices 220 operated by a modeling entity 404 (seeFIG. 4), one or more computing devices 225 operated by an ETF entity 406(see FIG. 4), one or more computing devices 230 operated by the PCFinformation distribution entity 110 (see FIG. 4), one or more computingdevices 240 operated by one or more sources of market information 408(e.g., Bloomberg LP, International Data Corporation (“IDC”), FactSetResearch Systems Inc., and the like), and one or more computing devices250 operated by the one or more AP(s) 104 (see FIG. 4). The modelingentity 404 may be the same entity as the ETF entity 406. In suchembodiments, the system 200 may omit the one or more computing devices220. However, this is not a requirement. In the embodiment illustrated,the computing devices 210, 220, 225, 230, 240, and 250 are connected toone another by a network 260. By way of a non-limiting example, thecomputing devices 210 illustrated in FIG. 2 include computing devices210A, 210B, and 210C operated by a Portfolio Manager “A,” a PortfolioManager “B,” and a Portfolio Manager “C,” respectively. Also, by way ofa non-limiting example, the computing devices 250 illustrated in FIG. 2include computing devices 250A and 250B operated by the AP “A” and theAP “B,” respectively. However, as is appreciated by those of ordinaryskill in the art, the system 200 may include any number of computingdevices 210 and the computing devices 250.

Method 300

FIG. 3 is a flow diagram of a method 300 that may be performed by thesystem 200 (see FIG. 2). The method 300 may be used to create and/ormaintain a multi-manager ETF. All or portions of the method 300 may beperformed daily.

FIG. 4 is a diagram 400 illustrating entities and information flowsbetween those entities involved in the method 300. Like referencenumerals have been used to identify like entities and information flowsillustrated in the diagram 100 of FIG. 1. The ETF entity 406 holds theconstituent assets 405 of the ETF and employs a fund manager 407 tomanage the constituent assets 405.

Referring to FIGS. 3 and 4, in first block 310, two or more of theportfolio managers 402 are selected by the modeling entity 404. By wayof a non-limiting example, up to fifteen portfolio managers may beselected. For ease of illustration, in first block 310, the modelingentity 404 selects the Portfolio Manager “A,” the Portfolio Manager “B,”and the Portfolio Manager “C.”

By way of a non-limiting example, in block 310, the modeling entity 404may select the portfolio managers 402 using the following process:

-   -   1. Identify a set of portfolio managers;    -   2. Assign a score (e.g., a quality score) to each portfolio        manager;    -   3. Rank the portfolio managers in accordance with their scores;    -   4. Select a sub-set of the highest-ranked portfolio managers        using at least one of the following techniques:        -   a. Manager combination profiles;        -   b. Correlation matrices;        -   c. Scenario analysis; and        -   d. Portfolio attribution; and    -   5. Divide the selected sub-set of portfolio managers into        portfolio “sleeves” or groupings having shared characteristics        (e.g., style, use of a market capitalization based weighting        scheme, risk tolerance, and the like).

The score assigned to each of the portfolio managers may be based onpast performance and determined using a conventional due diligenceprocess.

While methods of selecting the two or more portfolio managers 402 havebeen provided above, those of ordinary skill in the art appreciate thatalternate methods exist and may be used in block 310 instead of themethods described above. In other words, the use of conventional methodsto select the two or more portfolio managers 402 are within the scope ofthe present teachings.

In next block 320, each of the portfolio managers 402 selected in block310 sends a model portfolio to the computing device(s) 220 operated bythe modeling entity 404. Thus, each of the computing devices 210 isconfigured to provide a model portfolio (illustrated by arrow 110) viathe network 260 (see FIG. 2) to the one or more computing devices 220(see FIG. 2) operated by the modeling entity 404. In this manner, inblock 320, the modeling entity 404 acquires the model portfolios fromthe portfolio managers 402. Each model portfolio identifies one or moreconstituent assets. For each constituent asset, each model portfolioincludes the identifier of the constituent asset, and a number of sharesof the constituent asset included in the model portfolio (or a weightassigned to the constituent asset from which the number of shares of theconstituent asset may be determined). Optionally, for each constituentasset, each model portfolio may include both the number of shares of theconstituent asset and the weight assigned to the constituent asset fromwhich the number of shares of the constituent asset may be determined.In some embodiments, each of the model portfolios includes a buy-list ofconstituent asset identifiers along with a number of shares to buy (or aweight from which the number of shares to buy may be determined), and asell-list of constituent asset identifiers along with a number of sharesto sell (or a weight from which the number of shares to sell may bedetermined) that may be used to implement the model portfolio.

In some embodiments, each of the portfolio managers 402 is unaware ofthe contents of the model portfolios prepared by the other portfoliomanagers. However, this is not a requirement.

In block 330, the one or more computing devices 220 (see FIG. 2) use themodel portfolios to create a new PCF identifying the one or moreconstituent assets that will make up the multi-manager ETF. Optionally,the one or more computing devices 220 (see FIG. 2) use the modelportfolios to create a trade list identifying trades to be performed bythe fund manager 407 to modify the constituent assets 405 held by theETF entity 406. Optionally, in addition to the model portfolios, the oneor more computing devices 220 (see FIG. 2) also use financialinformation (illustrated as arrow 414) received from the one or morecomputing devices 240 (see FIG. 2) operated by the one or more sourcesof market information 408 via the network 260 (see FIG. 2). Thefinancial information illustrated as arrow 414 may include priceinformation for assets, share volumes traded, and the like. The one ormore computing devices 240 (see FIG. 2) operated by the one or moresources of market information 408 may receive at least a portion of thefinancial information (illustrated as arrow 416) from the stock exchange106 via the network 260 (see FIG. 2).

The portfolio managers 402 selected in block 310 may remain constant orchange over time. For example, one or more of the portfolio managers 402selected in block 310 may underperform or otherwise need to be replaced.Unfortunately, under applicable laws and regulations, the process ofreplacing a portfolio manager is lengthy (e.g., typically requiring 3-6months). To avoid the long legal process of replacing a portfoliomanager, the model portfolios provided by some of the portfolio managers402 selected in block 310 may not be used to create the new PCF. Suchportfolio managers may be referred to as being “on deck.” For example,in block 310, five managers may be selected and approved to participatein the creation of the new PCF for the multi-manager ETF. However, onlythe model portfolios supplied by three of the five managers may be usedto create the new PCF. These portfolio managers may be referred to as“active.” The other two portfolio managers are each waiting “on deck” inthe event that one of the active portfolio managers must be replaced.Because the “on deck” portfolio managers are board-approved and alreadyidentified in a prospectus for the ETF, an “on deck” portfolio managermay replace an active portfolio manager in days, rather than months.

Then, in block 340, the financial markets (e.g., the stock exchange 106)close where the one or more constituent assets listed in the new PCF aretraded. In alternate embodiments, the blocks 320 and 330 may beperformed after block 340. Further, in some embodiments, the block 310may be performed after block 340.

In block 350, the modeling entity 404 transmits the new PCF and/or atrade list (illustrated as arrow 420) to the one or more computingdevices 230 (see FIG. 2) operated by the PCF information distributionentity 110. Thus, the computing device(s) 220 is/are configured toprovide the new PCF and/or the trade list via the network 260 (see FIG.2) to the one or more computing devices 230 operated by the PCFinformation distribution entity 110. In embodiments where the modelingentity 404 is other than the ETF entity 406, the modeling entity 404 mayalso transmit the new PCF and/or the trade list (illustrated as arrow422) to the ETF entity 406. In such embodiments, the computing device(s)220 is/are configured to provide the new PCF and/or the trade list viathe network 260 to the one or more computing devices 225 operated by theETF entity 406.

In block 360, the one or more computing devices 230 operated by the PCFinformation distribution entity 110 transmit the ETF constituentinformation (illustrated as arrow 112) via the network 260 to the one ormore computing devices 250 operated by the AP(s) (e.g., the AP “A,” theAP “B,” and the like). The ETF constituent information may include theentire new PCF or portions thereof. Thus, in some embodiments, the oneor more computing devices 230 may extract information from the PCF andforward it to the one or more computing devices 250 operated by theAP(s). In embodiments where the modeling entity 404 is other than theETF entity 406, the PCF information distribution entity 110 may alsotransmit the ETF constituent information to the ETF entity 406. In suchembodiments, the computing device(s) 230 is/are configured to providethe ETF constituent information via the network 260 to the one or morecomputing devices 225 operated by the ETF entity.

As explained above, if the modeling entity 404 is other than the ETFentity 406, the modeling entity 404 and/or the PCF informationdistribution entity 110 may provide the new PCF, the trade list, and/orETF constituent information to the ETF entity 406.

Then, in block 370, the financial markets (e.g., the stock exchange 106)open where the one or more constituent assets identified in the new PCFare traded.

In block 380, if necessary, the fund manager 407 buys new constituentassets on the market(s) where such assets are sold and/or sellsconstituent assets currently held by the ETF entity 406 (illustrated bydouble-headed arrow 430). In some embodiments, when the constituentassets identified in the new PCF differ from the constituent assets 405currently held by the ETF entity 406, the constituent assets 405 held bythe ETF entity are modified to correspond to those listed in the newPCF. In such embodiments, after receiving the ETF constituentinformation and/or the new PCF, the fund manager 407 (a) determineswhether additional constituent assets must be purchased on the financialmarkets where such constituent assets are traded (e.g., the stockexchange 106), (b) determines whether one or more of the constituentassets 405 currently held by the ETF entity 406 must be sold on thefinancial markets where such constituent assets are traded (e.g., thestock exchange 106), and (c) effects the purchase and/or sale of assetson the financial markets where such constituent assets are traded (e.g.,the stock exchange 106) in accordance with the aforementioneddeterminations.

In embodiments in which the trade list is generated, in block 380, thefund manager 407 executes the trades identified in the trade list. As isapparent to those of ordinary skill in the art, in some embodiments, theconstituent assets 405 may include assets not listed on the new PCF. Inother words, the basket of assets required to obtain a creation unit ofthe ETF may not include each asset in the ETF. Therefore, the trade listmay include assets not included in the PCF. Further, a new PCF may omitan asset included on a previous PCF and the trade list may not indicatea sale of the omitted asset. Thus, the trade list is used to determinewhich assets are held by the ETF entity 406 and the ETF constituentinformation and/or the new PCF are used to identify the assets to beincluded in the basket of assets that may be exchanged for a creationunit of the ETF.

At some point after block 340 and before the method 300 terminates, atleast one of the modeling entity 404, the ETF entity 406, and the PCFinformation distribution entity 110 optionally provides the trade list,the new PCF, and/or ETF constituent information (illustrated by arrow440) to the portfolio managers 402 to be used thereby to prepare thenext set of model portfolios.

Then, the method 300 terminates.

In some embodiments, the modeling entity 404 generates the new PCF fileabout 24 hours before the new PCF is effective. In other words, a basketincluding the constituent assets identified in the new PCF cannot betraded for a creation unit of the ETF until after trading opens on thenext day. In such embodiments, the method 300 occurs over three tradingdays. On the first trading day, blocks 310 to 340 may be performed.Between the first and second trading days, block 350 and 360 may beperformed. On the second day, block 380 may be performed. On the thirdday, the new PCF becomes effective.

After block 380, the method 300 may be repeated to generate another newPCF. When the method 300 repeats, the block 310 may be repeated oromitted.

Method 500

FIG. 5 is a flow diagram of a method 500 that may be performed by theone or more computing devices 220 (see FIG. 2) operated by the modelingentity 404 (see FIG. 4) in block 330 of the method 300 (see FIG. 3). Themethod 300 generates the new PCF based at least in part on the modelportfolios provided by those of the portfolio managers 402 that areactive (as opposed to being “on deck”).

Referring to FIGS. 4 and 5, in first block 510, the modeling entity 404combines the model portfolios (received from the portfolio managers 402)to create a combined portfolio. By way of a non-limiting example, themodel portfolios may be combined by equally weighting the constituentassets identified in each of the model portfolios. For example, if thereare three active portfolio managers, the constituent assets of each oftheir portfolios may be multiplied by one third and the three equallyweighted model portfolios combined into the single combined portfolio.

By way of another non-limiting example, custom weighting may be used.For example, the constituent assets of the model portfolio provided bythe Portfolio Manager “A” may be multiplied by a weight of 0.2 (or 20%),the constituent assets of the model portfolio provided by the PortfolioManager “B” may be multiplied by a weight of 0.3 (or 30%), and theconstituent assets of the model portfolio provided by the PortfolioManager “C” may be multiplied by a weight of 0.5 (or 50%). The customweights may be determined based at least in part on desired risk returncharacteristics for the ETF. Using this approach, the custom weights areused to conform the contributions of the selected portfolio managers toa particular risk return profile. For example, the weights may beassigned by evaluating conformance of the portfolio managers to a set ofguidelines. Exemplary guidelines may include an excess return targetcompared to a benchmark, a desired maximum risk variation, and the like.By way of non-limiting examples, the excess return target may be about2% above the benchmark, and the desired maximum risk variation may beabout 2% to about 3%.

In block 510, the modeling entity 404 “crosses” each of the modelportfolios with the constituent assets 405 currently held by the ETFentity 406 and with the other model portfolios. Crossing is aconventional technique that identifies duplicate trades as well astrades that cancel or offset one another. The goal of crossing istypically to identify and remove duplicate holdings and reduce risk.Thus, in block 510, the modeling entity 404 may identify changes in thenumber of shares and weights for each constituent asset across the modelportfolios to identify net changes in holdings of the constituent asset.

In block 520, the modeling entity 404 performs an optimization analysison the combined portfolio to create an optimized portfolio. By way of anon-limiting example, the optimization analysis may include removing a“tail” of the combined portfolio. The tail includes constituent assetsof the combined portfolio for which less than a threshold number ofshares are to be held. In other words, removing the tail removes smallinvestment positions from the combined portfolio. For this reason,removing the tail may reduce trading costs.

By way of another non-limiting example, the optimization analysis may beconfigured to reduce trading frequency. For example, the optimizedportfolio may be matched to the combined portfolio less frequently thanchanges occur in the combined portfolio. Specifically, while thecombined portfolio may change daily, the optimized portfolio may matchthe combined portfolio only once every predetermined number of days(e.g., every 10 business days). This process helps avoid tradesinitiated by the selected portfolio managers during the predeterminednumber of days (or “trading interval”) that would otherwise offset oneanother. For example, if on a first day, the model portfolio provided bythe Manager “A” indicates 100 shares of a particular asset should bepurchased, and the next day, the model portfolio provided by the Manager“B” indicates 100 shares of a particular asset should be sold, by notmatching the optimized portfolio to the combined portfolio on a dailybasis, the purchase and sale of 100 shares of the particular asset maybe avoided.

By way of another non-limiting example, the optimization analysis may beconfigured to delay changes to the optimized portfolio by apredetermined amount of time (e.g., 10 business days). The delay mayhelp avoid competing with other accounts that are also managed by theselected portfolio managers.

By way of another non-limiting example, the optimization analysis may beconfigured to avoid holding a number of shares of a constituent assetbelow a threshold number (or a small position in the constituent asset)and to avoid trades that change the weight of a constituent asset in theoptimized portfolio by an amount below a threshold amount. This reducesturnover and trading costs, as well as the number of constituent assetsthat need to be processed by the AP(s) and ETF entity. The thresholdnumber of shares may be fund-specific and based at least in part on thelevel of diversification of the multi-manager ETF. More stringentcriteria (e.g., lower threshold values) may be used to eliminate smallpositions and trades in more diversified multi-manager ETFs.

In block 530, the modeling entity 404 validates the optimized portfolio.By way of non-limiting examples, in block 530, the modeling entity 404may verify that the identifiers of the constituent assets of theoptimized portfolio are correct, validate the number of shares (orweights) of each of the constituent assets of the optimized portfolioare acceptable, and the like.

In block 530, the modeling entity 404 may validate the optimizedportfolio to ensure the optimized portfolio accurately reflects futurecorporate actions (e.g., stock splits, cash reinvestments, dissolutions,and the like). For example, if the optimized portfolio includes 100shares of a particular equity and the modeling entity 404 knows theparticular equity will split 2:1 effective the next day, the modelingentity 404 determines whether the 100 shares takes the stock split intoaccount. If it does not, in block 565 (described below) the modelingentity 404 will increase the number of shares of the particular entityin the optimized portfolio to 200 shares. On the other hand, if theoptimized portfolio takes the stock split into account, the modelingentity 404 need not take any action.

In block 530, the modeling entity 404 may receive conventional datafeeds that identify corporate actions and the effective dates of thosecorporate actions. Because the new PCF may not become effective untilafter the method 500 is performed (e.g., about 24 hours after the method500 is performed), the new PCF may have to account for corporate actionshaving effective dates in the future. For example, as mentioned above,the method 300 illustrated in FIG. 3 may occur over three trading dayswith the new PCF becoming effective on the third day. In suchembodiments, the new PCF does not become effective until about 24 hoursafter the method 500 is performed. Therefore, new PCF must account forcorporate actions having effective dates in the future. In other words,the new PCF must account for corporate actions having the first, second,and third trading days as their effective dates.

Optionally, information related to corporate actions (e.g., data feeds)may be obtained from the one or more sources of market information 408.Thus, the one or more computing devices 240 (see FIG. 2) may beconfigured to provide information related to corporate actions to theone or more computing devices 220 (see FIG. 2) operated by the modelingentity 404 via the network 260.

In optional block 540, the modeling entity 404 performs a risk analysison the optimized portfolio to thereby risk adjust the optimizedportfolio. The risk analysis includes determining whether the optimizedportfolio is within a set of predefined risk parameter values. The setof predefined risk parameter values may include threshold values forvolatility, momentum, size, beta with respect to a benchmark (e.g., anindex), and the like. By way of a non-limiting example, the riskanalysis may evaluate risk based on risk models developed by companies(such as Axioma, Inc. having an address of 17 State Street, Suite 2550,New York, N.Y. 10004, MSCI Inc. having an address of One Chase ManhattanPlaza, 44th Floor, New York, N.Y. 10005, Northfield InformationServices, Inc. having an address of 77 North Washington St., 9th Floor,Boston, Mass. 02114, and the like) that develop tools for investmentportfolio managers. However, this is not a requirement. If the optimizedportfolio is not within the set of predefined risk parameter values, oneor more of the constituent assets may be replaced, the number of sharesof one or more of the constituent assets may be modified, and/or theweights assigned to one or more of the constituent assets may bemodified such that the risk-adjusted optimized portfolio is within theset of predefined risk parameter values.

In block 550, the modeling entity 404 adjusts the optimized portfolio toremove, reduce, and/or replace each illiquid asset in the optimizedportfolio to thereby create a liquid portfolio. Liquidity is a measureof investability and refers to the ease with which an asset may betraded. An asset (e.g., a security) with poor liquidity may be difficultto purchase and/or sell. Alternatively, an asset with high liquidity maybe readily purchased and sold. The liquidity of an asset can generallybe determined by examining its past trading activity. If an asset istraded infrequently and in small amounts, it likely has poor liquidity.Conversely, if an asset is traded frequently and in large amounts, itlikely has good liquidity. In block 550, assets that the AP(s) 104cannot purchase (e.g., assets with poor liquidity) are excluded from theliquid portfolio.

By way of a non-limiting example, in block 550, each illiquid asset maybe removed from the optimized portfolio or the number of shares of theilliquid asset reduced to a level at which the illiquid asset isconsidered liquid. By way of a non-limiting example, a level at which anasset is considered liquid may be 10% of the Average Daily TradingVolume of the asset. Assets having an Average Daily Trading Volume belowa predetermined threshold value may be removed from the optimizedportfolio.

By way of another non-limiting example, in block 550, the modelingentity 404 may assign a liquidity score to each asset in the optimizedportfolio based on a set of constraints. For example, the liquidityscores may include an illiquid score, a moderately liquid score, and aliquid score. Assets receiving an illiquid score may be removed from theoptimized portfolio. As mentioned above, the constituent assets 405 heldby the ETF entity 406 may include assets not identified in the new PCF.In such embodiments, at least a portion of the assets receiving amoderately liquid score may be retained in the optimized portfolio butmay be excluded from the new PCF. If necessary, such assets may belisted on the trade list.

In some embodiments, the liquidity scores may be determined based atleast in part on two considerations. The first consideration is how manybaskets of the assets identified in the optimized portfolio could bepurchased (which will determine the size of the ETF) by the AP(s) 104before their ability to purchase additional baskets is hampered by theavailability of one or more of the assets. The second consideration iswhether similar assets are available to hedge investment in the ETF. Iftoo few baskets could be created (e.g., fewer than a threshold number)or the investment in the ETF cannot be hedged, the assets limiting thenumber of baskets or preventing hedging are assigned an illiquid score.

Alternate methods of identifying illiquid assets and removing, reducing,and/or replacing them in a fund (e.g., an ETF) are known to those ofordinary skill in the art and the method 500 is not limited to use withany particular method.

In block 560, the modeling entity 404 reconciles the liquid portfoliowith the constituent assets 405 currently held by the ETF entity 406 togenerate the trade list. The trade list identifies trades required toconform the constituent assets 405 held by the ETF entity 406 to theliquid portfolio. The modeling entity 404 also generates an initial PCFbased on the liquid portfolio.

In block 565, if necessary, the modeling entity 404 adjusts the tradelist and/or initial PCF to account for corporate actions (e.g., stocksplits, cash reinvestments, dissolutions, and the like). In block 565,the modeling entity 404 may receive conventional data feeds thatidentify corporate actions and the effective dates of those corporateactions. As mentioned above, the method 300 illustrated in FIG. 3 mayoccur over three trading days. In such embodiments, the new PCF does notbecome effective until about 24 hours after the method 500 is performed.Therefore, the new PCF must account for corporate actions havingeffective dates in the future. In other words, the new PCF must accountfor corporate actions having the first, second, and third trading daysas their effective dates.

For example, if the initial PCF includes 100 shares of a particularequity and the modeling entity 404 knows the particular equity willsplit 2:1 effective the next day, the modeling entity 404 will increasethe number of shares of the particular entity in the initial PCF to 200shares. Methods of making such adjustments are known to those ofordinary skill in the art and will not be described in detail herein. Ifthe trade list or the initial PCF is adjusted in block 565, the liquidportfolio may also be adjusted accordingly.

In optional block 570, the modeling entity 404 performs a tax analysisand adjusts the trade list and/or initial PCF based on capital gains taxconsiderations. Unrealized capital gains arise when the trade listindicates a particular constituent asset is to be sold that wouldtrigger a significant realized capital gain and therefore, likely exposethe ETF to a significant capital gains tax. If the gain is large, thetax analysis considers other options before blindly executing the sale.For example, the modeling entity 404 may alter the trade list (e.g., toremove the sale of an asset having an unrealized capital gain) and theinitial PCF (to add the asset having the unrealized capital gain so thatthe asset can be transferred to the AP(s) 104 when creation units areredeemed). The tax analysis may include identifying unrealized capitalgains for each asset the trade lists indicates is to be sold and/or eachconstituent asset of the liquid portfolio down to a specific tax lot.For example, the fund manager 407 may periodically review the unrealizedcapital gains for each constituent asset of the liquid portfolio down toa specific tax lot to identify potential problems (e.g., largeunrealized capital gains). The tax analysis is complicated by on-goingprice changes for the particular constituent asset. Methods ofidentifying unrealized capital gains for each constituent asset (e.g.,down to a specific tax lot) are known to those of ordinary skill in theart and will not be described in detail herein.

In decision block 580, the modeling entity 404 determines whether theETF that would be defined by the initial PCF is compliant with relevantlaws and/or regulations. If the ETF is compliant, the decision indecision block 580 is “YES.” Otherwise, the decision in decision block580 is “NO.” Methods of determining whether the ETF that would bedefined by the initial PCF is compliant with relevant regulations and/orlaws are known to those of ordinary skill in the art and will not bedescribed in detail herein.

When the decision in decision block 580 is “NO,” in block 590, themodeling entity 404 adjusts the initial PCF, and if necessary, the tradelist, such that the ETF that would be defined by the initial PCF iscompliant with relevant regulations. Then, the modeling entity 404advances to block 595.

When the decision in decision block 580 is “YES,” the modeling entity404 advances to block 595.

In block 595, the modeling entity 404 creates the new PCF based on theinitial PCF. The new PCF identifies the assets in one creation unit ofthe ETF.

Then, the method 500 terminates.

The methods 300 and 500 are applicable to all asset classes included inExchange-Traded Products and the portfolio managers selected in block310 of the method 300 may include portfolio managers who generate modelportfolios containing constituent assets belonging to a single assetclass, portfolio managers who generate model portfolios containingconstituent assets belonging to multiple asset classes, and acombination thereof.

Computing Device

FIG. 6 is a diagram of hardware and an operating environment inconjunction with which implementations of the computing devices 210,220, 225, 230, 240, and 250, and the network 260 of the system 200 maybe practiced. The description of FIG. 6 is intended to provide a brief,general description of suitable computer hardware and a suitablecomputing environment in which implementations may be practiced.Although not required, implementations are described in the generalcontext of computer-executable instructions, such as program modules,being executed by a computer, such as a personal computer. Generally,program modules include routines, programs, objects, components, datastructures, etc., that perform particular tasks or implement particularabstract data types.

Moreover, those skilled in the art will appreciate that implementationsmay be practiced with other computer system configurations, includinghand-held devices, multiprocessor systems, microprocessor-based orprogrammable consumer electronics, network PCs, minicomputers, mainframecomputers, and the like. Implementations may also be practiced indistributed computing environments where tasks are performed by remoteprocessing devices that are linked through a communications network. Ina distributed computing environment, program modules may be located inboth local and remote memory storage devices.

The exemplary hardware and operating environment of FIG. 6 includes ageneral-purpose computing device in the form of a computing device 12.Referring to FIG. 2, the computing devices 210, 220, 225, 230, 240, and250 may each be implemented using a computing device substantiallysimilar to the computing device 12.

Returning to FIG. 6, the computing device 12 includes a system memory22, the processing unit 21, and a system bus 23 that operatively couplesvarious system components, including the system memory 22, to theprocessing unit 21. There may be only one or there may be more than oneprocessing unit 21, such that the processor of computing device 12includes a single central-processing unit (“CPU”), or a plurality ofprocessing units, commonly referred to as a parallel processingenvironment. When multiple processing units are used, the processingunits may be heterogeneous. By way of a non-limiting example, such aheterogeneous processing environment may include a conventional CPU, aconventional graphics processing unit (“GPU”), a floating-point unit(“FPU”), combinations thereof, and the like.

The computing device 12 may be a conventional computer, a distributedcomputer, or any other type of computer.

The system bus 23 may be any of several types of bus structuresincluding a memory bus or memory controller, a peripheral bus, and alocal bus using any of a variety of bus architectures. The system memory22 may also be referred to as simply the memory, and includes read onlymemory (ROM) 24 and random access memory (RAM) 25. A basic input/outputsystem (BIOS) 26, containing the basic routines that help to transferinformation between elements within the computing device 12, such asduring start-up, is stored in ROM 24. The computing device 12 furtherincludes a hard disk drive 27 for reading from and writing to a harddisk, not shown, a magnetic disk drive 28 for reading from or writing toa removable magnetic disk 29, and an optical disk drive 30 for readingfrom or writing to a removable optical disk 31 such as a CD ROM, DVD, orother optical media.

The hard disk drive 27, magnetic disk drive 28, and optical disk drive30 are connected to the system bus 23 by a hard disk drive interface 32,a magnetic disk drive interface 33, and an optical disk drive interface34, respectively. The drives and their associated computer-readablemedia provide nonvolatile storage of computer-readable instructions,data structures, program modules, and other data for the computingdevice 12. It should be appreciated by those skilled in the art that anytype of computer-readable media which can store data that is accessibleby a computer, such as magnetic cassettes, flash memory cards, solidstate memory devices (“SSD”), USB drives, digital video disks, Bernoullicartridges, random access memories (RAMs), read only memories (ROMs),and the like, may be used in the exemplary operating environment. As isapparent to those of ordinary skill in the art, the hard disk drive 27and other forms of computer-readable media (e.g., the removable magneticdisk 29, the removable optical disk 31, flash memory cards, SSD, USBdrives, and the like) accessible by the processing unit 21 may beconsidered components of the system memory 22.

A number of program modules may be stored on the hard disk drive 27,magnetic disk 29, optical disk 31, ROM 24, or RAM 25, including anoperating system 35, one or more application programs 36, other programmodules 37, and program data 38. A user may enter commands andinformation into the computing device 12 through input devices such as akeyboard 40 and pointing device 42. Other input devices (not shown) mayinclude a microphone, joystick, game pad, satellite dish, scanner, touchsensitive devices (e.g., a stylus or touch pad), video camera, depthcamera, or the like. These and other input devices are often connectedto the processing unit 21 through a serial port interface 46 that iscoupled to the system bus 23, but may be connected by other interfaces,such as a parallel port, game port, a universal serial bus (“USB”), or awireless interface (e.g., a Bluetooth interface). A monitor 47 or othertype of display device is also connected to the system bus 23 via aninterface, such as a video adapter 48. In addition to the monitor,computers typically include other peripheral output devices (not shown),such as speakers, printers, and haptic devices that provide tactileand/or other types physical feedback (e.g., a force feedback gamecontroller).

The input devices described above are operable to receive user input andselections. Together the input and display devices may be described asproviding a user interface. The input devices may be used to receiveinformation from the AP(s) 104, the PCF information distribution entity110, the portfolio managers 402, the modeling entity 404, the ETF entity406, and/or the source of market information 408. The user interface maybe used to display the PCF, the ETF constituent information, the tradelist, a listing of the constituent assets 405, financial information,and the like.

The computing device 12 may operate in a networked environment usinglogical connections to one or more remote computers, such as remotecomputer 49. These logical connections are achieved by a communicationdevice coupled to or a part of the computing device 12 (as the localcomputer). Implementations are not limited to a particular type ofcommunications device. The remote computer 49 may be another computer, aserver, a router, a network PC, a client, a memory storage device, apeer device or other common network node, and typically includes many orall of the elements described above relative to the computing device 12.The remote computer 49 may be connected to a memory storage device 50.The logical connections depicted in FIG. 6 include a local-area network(LAN) 51 and a wide-area network (WAN) 52. Such networking environmentsare commonplace in offices, enterprise-wide computer networks, intranetsand the Internet. The network 260 (see FIG. 2) may be implemented usingat least a portion of the networked environment described above.

Those of ordinary skill in the art will appreciate that a LAN may beconnected to a WAN via a modem using a carrier signal over a telephonenetwork, cable network, cellular network, or power lines. Such a modemmay be connected to the computing device 12 by a network interface(e.g., a serial or other type of port). Further, many laptop computersmay connect to a network via a cellular data modem.

When used in a LAN-networking environment, the computing device 12 isconnected to the local area network 51 through a network interface oradapter 53, which is one type of communications device. When used in aWAN-networking environment, the computing device 12 typically includes amodem 54, a type of communications device, or any other type ofcommunications device for establishing communications over the wide areanetwork 52, such as the Internet. The modem 54, which may be internal orexternal, is connected to the system bus 23 via the serial portinterface 46. In a networked environment, program modules depictedrelative to the personal computing device 12, or portions thereof, maybe stored in the remote computer 49 and/or the remote memory storagedevice 50. It is appreciated that the network connections shown areexemplary and other means of and communications devices for establishinga communications link between the computers may be used.

The computing device 12 and related components have been presentedherein by way of particular example and also by abstraction in order tofacilitate a high-level view of the concepts disclosed. The actualtechnical design and implementation may vary based on particularimplementation while maintaining the overall nature of the conceptsdisclosed.

The memory of the one or more computing devices 220 operated by themodeling entity 404 stores computer executable instructions that whenexecuted by one or more processors cause the one or more processors toperform all or portions of the methods 300 (see FIG. 3), and 500 (seeFIG. 5). Such instructions may be stored on one or more non-transitorycomputer-readable media.

The memory of the one or more computing devices 225 operated by the ETFentity 406 stores computer executable instructions that when executed byone or more processors cause the one or more processors to perform allor portions of the methods 300 (see FIG. 3), and 500 (see FIG. 5). Suchinstructions may be stored on one or more non-transitorycomputer-readable media.

The memory of the one or more computing devices 210 operated by theportfolio managers 402 stores processor executable instructions thatwhen executed by one or more processors cause the one or more processorsto perform a portion of the method 300 (see FIG. 3). Such instructionsmay be stored on one or more non-transitory computer-readable media.

The memory of the one or more computing devices 250 operated by theAP(s) 104 stores processor executable instructions that when executed byone or more processors cause the one or more processors to performportions of the method 300 (see FIG. 3). Such instructions may be storedon one or more non-transitory computer-readable media.

The memory of the one or more computing devices 230 operated by the PCFinformation distribution entity 110 stores processor executableinstructions that when executed by one or more processors cause the oneor more processors to perform portions of the method 300 (see FIG. 3).Such instructions may be stored on one or more non-transitorycomputer-readable media.

The memory of the one or more computing devices 240 operated by the oneor more sources of market information 408 stores processor executableinstructions that when executed by one or more processors cause the oneor more processors to perform portions of the method 300 (see FIG. 3).Such instructions may be stored on one or more non-transitorycomputer-readable media.

The foregoing described embodiments depict different componentscontained within, or connected with, different other components. It isto be understood that such depicted architectures are merely exemplary,and that in fact many other architectures can be implemented whichachieve the same functionality. In a conceptual sense, any arrangementof components to achieve the same functionality is effectively“associated” such that the desired functionality is achieved. Hence, anytwo components herein combined to achieve a particular functionality canbe seen as “associated with” each other such that the desiredfunctionality is achieved, irrespective of architectures or intermedialcomponents. Likewise, any two components so associated can also beviewed as being “operably connected,” or “operably coupled,” to eachother to achieve the desired functionality.

While particular embodiments of the present invention have been shownand described, it will be obvious to those skilled in the art that,based upon the teachings herein, changes and modifications may be madewithout departing from this invention and its broader aspects and,therefore, the appended claims are to encompass within their scope allsuch changes and modifications as are within the true spirit and scopeof this invention. Furthermore, it is to be understood that theinvention is solely defined by the appended claims. It will beunderstood by those within the art that, in general, terms used herein,and especially in the appended claims (e.g., bodies of the appendedclaims) are generally intended as “open” terms (e.g., the term“including” should be interpreted as “including but not limited to,” theterm “having” should be interpreted as “having at least,” the term“includes” should be interpreted as “includes but is not limited to,”etc.). It will be further understood by those within the art that if aspecific number of an introduced claim recitation is intended, such anintent will be explicitly recited in the claim, and in the absence ofsuch recitation no such intent is present. For example, as an aid tounderstanding, the following appended claims may contain usage of theintroductory phrases “at least one” and “one or more” to introduce claimrecitations. However, the use of such phrases should not be construed toimply that the introduction of a claim recitation by the indefinitearticles “a” or “an” limits any particular claim containing suchintroduced claim recitation to inventions containing only one suchrecitation, even when the same claim includes the introductory phrases“one or more” or “at least one” and indefinite articles such as “a” or“an” (e.g., “a” and/or “an” should typically be interpreted to mean “atleast one” or “one or more”); the same holds true for the use ofdefinite articles used to introduce claim recitations. In addition, evenif a specific number of an introduced claim recitation is explicitlyrecited, those skilled in the art will recognize that such recitationshould typically be interpreted to mean at least the recited number(e.g., the bare recitation of “two recitations,” without othermodifiers, typically means at least two recitations, or two or morerecitations).

Accordingly, the invention is not limited except as by the appendedclaims.

The invention claimed is:
 1. A computer-implemented method for use witha stock exchange, investors, a plurality of portfolio managers, and anexchange traded fund having at least one authorized participant, the atleast one authorized participant being different from the investors, themethod being performed by at least one computing device, the methodcomprising: receiving a plurality of model portfolios, each modelportfolio having been created by a different one of the plurality ofportfolio managers and received from a different computing device, eachmodel portfolio identifying a plurality of assets traded on the stockexchange; combining at least a portion of the model portfolios into acombined portfolio; creating a portfolio composition file based at leastin part on the combined portfolio, the portfolio composition fileidentifying a set of constituent assets traded on the stock exchange,the exchange traded fund trading a creation unit comprising at least oneshare of the exchange traded fund for the set of constituent assets,only the one or more authorized participants being authorized to tradethe set of constituent assets for the creation unit of the exchangetraded fund, the at least one share of the creation unit being tradableon the stock exchange by both the at least one authorized participantand the investors; and transmitting the portfolio composition file to atleast one other computing device operated by the at least one authorizedparticipant.
 2. The method of claim 1, wherein the combined portfolioidentifies a plurality of assets, and a number of shares of each of theplurality of assets identified by the combined portfolio, and the methodfurther comprises: identifying one or more illiquid assets within theplurality of assets identified by the combined portfolio; and modifyingthe combined portfolio by at least one of (1) removing theidentifications from the combined portfolio of the one or more illiquidassets, (2) reducing the number of shares of the one or more illiquidassets identified by the combined portfolio, or (3) replacing theidentifications of the one or more illiquid assets with identificationsof different assets that are more liquid.
 3. The method of claim 1,further comprising: performing a risk analysis on the combined portfolioto determine whether the combined portfolio is within a set of riskparameters; and modifying the combined portfolio if the risk analysisdetermines the combined portfolio is not within the set of riskparameters.
 4. The method of claim 1, further comprising: modifying thecombined portfolio to adjust for at least one corporate action having aneffective date in the future.
 5. The method of claim 4, wherein the atleast one corporate action comprises at least one of a stock split, acash reinvestment, or a dissolution.
 6. The method of claim 4 for usewith one or more source of market information, the method furthercomprising: obtaining information identifying the at least one corporateaction from at least one computing device operated by the one or moresource of market information.
 7. The method of claim 1, wherein thecombined portfolio identifies a plurality of assets and a value for eachasset from which a number of shares of the asset may be determined, andthe method further comprises: removing from the combined portfolioidentifications of any assets having a value below a threshold number.8. The method of claim 1 for use with the exchange traded fund having afirst set of constituent assets, the method further comprising: crossingthe plurality of model portfolios with one another and the first set ofconstituent assets before creating the portfolio composition file. 9.The method of claim 1, wherein the identification of the plurality ofassets in each of the plurality of model portfolios comprises, for eachasset, an identifier identifying the asset, and a number of shares ofthe asset to be included in the model portfolio, and combining theportion of the model portfolios into the combined portfolio comprises:selecting a corresponding weight for each model portfolio in the portionof the model portfolios; for each model portfolio, multiplying thenumber of shares of each of the plurality of assets by the weightcorresponding to the model portfolio to obtain a weighted number ofshares; and aggregating the weighted number of shares.
 10. The method ofclaim 9, wherein for each for each model portfolio, the correspondingweight is selected based on an evaluation of conformance of the one ofthe plurality of portfolio managers who created the model portfolio to aset of guidelines.
 11. The method of claim 10, wherein the set ofguidelines comprises at least one of an excess return target compared toa benchmark, or a desired maximum risk variation.
 12. The method ofclaim 1, further comprising: transmitting the portfolio composition fileto the plurality of portfolio managers.
 13. The method of claim 1,further comprising: transmitting the portfolio composition file to eachdifferent computing device from which one of the plurality of modelportfolios was received.
 14. The method of claim 1 for use with at leastone other computing device operated by a file distribution entity,wherein transmitting the portfolio composition file to the at least oneother computing device operated by the at least one authorizedparticipant comprises: transmitting the portfolio composition file tothe at least one other computing device operated by the filedistribution entity for transmission thereby to the at least one othercomputing device operated by the at least one authorized participant.15. The method of claim 1, further comprising: obtaining indications ofwhich of the plurality of portfolio managers are active, the portion ofthe model portfolios combined into the combined portfolio comprising themodel portfolios received from those of the plurality of portfoliomanagers that are indicated as being active.
 16. The method of claim 1for use with at least one computing device operated by one or moresource of market information, the method further comprising: receivingfinancial information from the at least one computing device operated bythe one or more source of market information, wherein the portfoliocomposition file is created based at least in part on the combinedportfolio, and the financial information.
 17. The method of claim 1 foruse with the exchange traded fund comprising constituent assets andbeing managed by a fund manager, the method further comprising: creatinga trade list based on the model portfolios, the trade list identifyingone or more trades to be performed by the fund manager to modify theconstituent assets of the exchange traded fund.
 18. The method of claim17, further comprising: modifying the trade list to adjust for at leastone corporate action having an effective date in the future.
 19. Themethod of claim 18, where in the at least one corporate action comprisesat least one of a stock split, a cash reinvestment, or a dissolution.20. The method of claim 1, further comprising transmitting the portfoliocomposition file to at least one other computing device operated by theexchange traded fund.
 21. The method of claim 1, wherein for each of theplurality of model portfolios, the identification of the plurality ofassets comprises, for each of the plurality of assets, an identifieridentifying the asset, and a value from which a number of shares of theasset to be included in the model portfolio may be determined.
 22. Themethod of claim 1, wherein for each of the plurality of modelportfolios, the identification of the plurality of assets comprises abuy-list and a sell-list, the buy-list identifying a plurality of assetsto buy and for each asset to be bought a value from which a number ofshares to be bought may be determined, the sell-list identifying aplurality of assets to be sold and for each asset to be sold a valuefrom which a number of shares to be sold may be determined.
 23. Themethod of claim 1, wherein only the one or more authorized participantsis authorized to redeem a creation unit for the set of constituentassets.
 24. The method of claim 1, wherein the portfolio compositionfile is transmitted to the at least one other computing device when thestock exchange is closed.
 25. A system for use with a stock exchange,investors, and an exchange traded fund having a plurality of authorizedparticipants, the at least one authorized participant being differentfrom the investors, the system comprising: at least one first computingdevice operated by a modeling entity; at least one second computingdevice operated by the exchange traded fund, the exchange traded fundcomprising a first set of constituent assets; a first plurality ofcomputing devices operated by the plurality of authorized participants;and a second plurality of computing devices configured to transmit aplurality of model portfolios to the at least one first computingdevice, the at least one first computing device being configured toidentify a second set of constituent assets based on the plurality ofmodel portfolios, and transmit identifications of the second set ofconstituent assets to the at least one second computing device and thefirst plurality of computing devices operated by the plurality ofauthorized participants, the exchange traded fund at least one of buyingand selling a portion of the first set of constituent assets on thestock exchange based on the identifications of the second set ofconstituent assets received from the at least one first computingdevice, each of the plurality of authorized participants beingauthorized by the exchange traded fund to trade the second set ofconstituent assets for a creation unit comprising shares of the exchangetraded fund, each of the plurality of authorized participants beingfurther authorized by the exchange traded fund to trade the creationunit for the second set of constituent assets, the shares of theexchange traded fund being tradable on the stock exchange by theinvestors.
 26. The system of claim 25, wherein the at least one firstcomputing device transmits the identifications of the second set ofconstituent assets to the at least one second computing device and thefirst plurality of computing devices when the stock exchange is closed.27. A computer-implemented method performed by at least one computingdevice operated by an exchange traded fund comprising a first set ofconstituent assets each of which is tradable on a stock exchange, themethod comprising: receiving identifications of assets to buy andidentifications of assets to sell that were determined based on aplurality of model portfolios each created by a different portfoliomanager; modifying the first set of constituent assets to create asecond set of constituent assets by buying assets identified in theidentifications of assets to buy on the stock exchange, and sellingassets identified in the identifications of assets to sell on the stockexchange; identifying a third set of constituent assets based on thesecond set of constituent assets, the third set of constituent assetscorresponding to a creation unit comprising at least one share of theexchange traded fund; and trading the creation unit for the third set ofconstituent assets, the at least one share of the exchange traded fundbeing tradable on the stock exchange.
 28. The method of claim 27,further comprising: transmitting identifications of the third set ofconstituent assets to a plurality of computing devices each operated bya different one of the portfolio managers who created one of theplurality of model portfolios.
 29. The method of claim 27, furthercomprising: transmitting identifications of the third set of constituentassets to one or more computing devices each operated by an authorizedparticipant.